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Tuesday, 10 March 15
OIL PRICE FORECASTING - IGNORE THE EXPERTS: COLIN MARSHALL
 KNOWLEDGE TO ELEVATE
Experts put themselves on a pedestal, making claims to have special forecasting abilities for oil price trends. They, too, one way or another, charge for making those claims. Because of this, they deserve to be investigated. And, depending on the outcome of the investigation, they may also be deserving of ridicule.So, what is driving the oil price today? Many commentators have noted that today, there are a number of hypotheses, phenomena and factors all contributing to the vagaries of the oil price:
Rising shale hydrocarbon supply. Shale oil and gas ramping up, as producers have recognized that shale production is more prolific than expected. Furthermore, the certainty of shale hydrocarbon production has proved attractive (compared with normal exploration), following more of a “production line” model, where every dollar injected delivers a reasonably certain production.
Worldwide oil demand is dropping and not just in China. Efficiencies are resulting in reduced demand. Winters are generally milder. Slowly but surely, global users are switching to gas and dropping the price as technology improves and economies of scale kick in.
Cars create about 60 percent of the demand for oil, and the introduction of gas-powered and electric vehicles is increasing. Solar power is also increasing and could become a material alternative energy source in the medium term.
The Middle East is unstable. The potential for severe supply disruption from war, political (“Arab Spring”) uprisings or even sanctions adds tension and uncertainty into the already precarious supply and demand balancing acts. Erratic production from war-torn countries like Iraq and Libya often surprise the market with actual supply far different from predictions.
The Islamic State (IS) scares analysts as well. The market is easily spooked by terrorism, notably IS, who frightens even al-Qaeda. This threat of terrorist activities tends to keep prices high or at least volatile.
Prices need to support budgets. Many countries rely heavily on oil and gas revenues to support their national budgets.
In other words, once prices drop, their pain may force them to cut production themselves if they are Organization of Petroleum Exporting Countries (OPEC) members, or at least put significant pressure on swing producers to reduce production to increase prices.
Saudi believes in supply and demand. Saudi Arabia, and hence OPEC, has maintained a firm stance not to cut production to maintain prices, as they believe that any reduction would probably not increase oil prices, as the shale producers would simply fill the gap.
By allowing oil prices to fall, Saudi hopes the shale producers will reduce production, and not make material shale-related infrastructure capital commitments.
Supply will drop, prices rise, allowing OPEC to maintain their market share, at higher prices, in the future.
Saudi doesn’t believe in supply and demand — it’s all geo-politics. Saudi wants to see the end of the current Syrian regime, as does Qatar, as Syria blocks their access to European gas.
Despite this anti-Syria alignment, Qatar allegedly supports IS as a catalyst to topple Syria whereas Saudi chooses to allow oil prices to free-fall, to put pressure on Russia to stop supporting Syria, a position the US allegedly supports.
Putin is unlikely to capitulate as giving central Europe an alternative gas supply to mother Russia may bring even more pain than low oil prices.
Reduced costs will mitigate the lower prices. Some ambivalence toward low prices, especially by the majors, comes from the fact that costs are expected to eventually drop as inefficiencies (“fat”) are taken out of various components of the energy value chain.
In other words, providing one has the resources to endure the period until costs “catch-up” and reduce sufficiently, producers should eventually see a return to the profits they were previously receiving, even in a low oil-price environment.
Work programs are committed. Some companies have work commitments that cannot be immediately adjusted as a result of oil price changes.
Hedges give some short-term protection. Some companies will have taken out oil price hedges and this will have protected them from low oil prices, disincentivizing them to reduce production — but these hedges will drop off soon.
Two primary observations develop from this long list: first, there are a lot of points, perhaps suggesting that we really cannot expect to make a sensible prediction.
Second, there are arguments on both the supply and demand side, making anyone who tediously repeats the platitude about “the oil price being simply about supply and demand” appears somewhat simple-minded.
Whilst people may believe that their (or others) actions affect or manipulate the oil price, the reality may be that the consequences of those actions are of minor importance only.
The low oil price fluctuations are possibly due to unimagined and unfathomable factors, or complex combinations of factors.
The bottom line is that the world is much more complex these days and this makes the oil price difficult to predict. Even the fact that most commentators today believe that the oil price will stay low for at least a year or so should be taken with a grain of salt — nobody really knows.
A single war or major terrorist action could have catastrophic consequences on oil prices.
So what will happen to the oil price? As one with no pretensions of having knowledge, I predict oil price will swing in a US$50-100/per barrel range for the next few years or so, then gradually rise as population, education, prosperity and demand continues to rise, but still swinging in a fairly large range.
This $50-100/bbl range is justified as follows: Putting aside all the excuses for not being able to make predictions, including the obfuscating geopolitical conspiracy theories, it appears that a major factor is the addition of large quantities of shale hydrocarbons on the market, accessible as a result of new technology.
As oil prices increased an alternative has appeared, today in the form of shale hydrocarbons.
Shale oil is believed to cost around $85/bbl to produce — and a well’s production declines rapidly, falling by about 60 percent in the first year alone. In other words, shale hydrocarbons need new, expensive wells continuously to maintain production — below $85/bbl this will not happen and supply will reduce as wells are not drilled, increasing demand.
Recognizing that price does not rebound immediately, that there is a lag or elasticity to the price, prices may drop to a natural floor of around $50, by which point under most circumstances demand will send the price north once again.
The longer oil is “low”, then the more quickly it will swing back and likely over-shoot the $85/bbl ceiling, perhaps up to around $100/bbl, before inevitably descending once again.
Hence I believe the price will be around $50-100, the period and magnitude of the changes primarily in response to the ongoing geopolitical parlor games.
Some may accuse me of protecting myself by suggesting such a large range, but in fact I am specifically predicting there will be fluctuations in that bandwidth, with an average price around $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Monday, 17 July 23
APPROVED AMMONIA-FUELED CONTAINERSHIP - BENEFITS AND RISKS: REED SMITH
Following the news in Offshore Energy that Korea Maritime Consultants has secured approval in principle from the American Bureau of Shipping for it ...
Friday, 14 July 23
CLEAN COAL USE KEY TO DEEP CUTS IN EMISSIONS, STABLE ELECTRICITY SUPPLY - CHINA DAILY
China must push for the clean use of coal and step up integration of the dirty fuel with carbon capture, utilization and storage to achieve sustain ...
Thursday, 13 July 23
VIETNAM'S COAL EMISSIONS PRIMED FOR SURGE AFTER IMPORTS JUMP - REUTERS
Vietnam’s thermal power emissions are primed for a steep climb this summer after the country’s imports of thermal coal soared to their ...
Monday, 26 June 23
COAL PRODUCTION AND CONSUMPTION UP IN 2022 - EUROSTAT
In 2022, EU coal production and consumption continued to increase, reaching 349 million tonnes (+5% compared with the previous year) and 454 millio ...
Wednesday, 21 June 23
QATAR STRIKES SECOND BIG LNG SUPPLY DEAL WITH CHINA - REUTERS
Qatar on Tuesday secured its second large gas supply deal with a Chinese state-controlled company in less than a year, putting Asia clearly ahead i ...
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- GVK Power & Infra Limited - India
- Manunggal Multi Energi - Indonesia
- Oldendorff Carriers - Singapore
- Carbofer General Trading SA - India
- Energy Link Ltd, New Zealand
- Pendopo Energi Batubara - Indonesia
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- Intertek Mineral Services - Indonesia
- Price Waterhouse Coopers - Russia
- Simpson Spence & Young - Indonesia
- Vizag Seaport Private Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Dalmia Cement Bharat India
- Gujarat Mineral Development Corp Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Meenaskhi Energy Private Limited - India
- Eastern Energy - Thailand
- Billiton Holdings Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Thai Mozambique Logistica
- Mercuria Energy - Indonesia
- Georgia Ports Authority, United States
- Ministry of Finance - Indonesia
- Ministry of Transport, Egypt
- Coastal Gujarat Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Vedanta Resources Plc - India
- Cigading International Bulk Terminal - Indonesia
- Interocean Group of Companies - India
- Edison Trading Spa - Italy
- Indian Energy Exchange, India
- IEA Clean Coal Centre - UK
- Vijayanagar Sugar Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Mintek Dendrill Indonesia
- IHS Mccloskey Coal Group - USA
- Siam City Cement PLC, Thailand
- Australian Coal Association
- Ceylon Electricity Board - Sri Lanka
- Medco Energi Mining Internasional
- Central Java Power - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Kumho Petrochemical, South Korea
- Siam City Cement - Thailand
- Globalindo Alam Lestari - Indonesia
- The University of Queensland
- Therma Luzon, Inc, Philippines
- Electricity Authority, New Zealand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Holcim Trading Pte Ltd - Singapore
- New Zealand Coal & Carbon
- Sarangani Energy Corporation, Philippines
- Borneo Indobara - Indonesia
- Minerals Council of Australia
- Petron Corporation, Philippines
- McConnell Dowell - Australia
- Straits Asia Resources Limited - Singapore
- Economic Council, Georgia
- Thiess Contractors Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Directorate General of MIneral and Coal - Indonesia
- Ministry of Mines - Canada
- Kaltim Prima Coal - Indonesia
- Savvy Resources Ltd - HongKong
- Alfred C Toepfer International GmbH - Germany
- The State Trading Corporation of India Ltd
- PNOC Exploration Corporation - Philippines
- Commonwealth Bank - Australia
- PowerSource Philippines DevCo
- Global Business Power Corporation, Philippines
- Indian Oil Corporation Limited
- Baramulti Group, Indonesia
- Bhushan Steel Limited - India
- Coal and Oil Company - UAE
- Riau Bara Harum - Indonesia
- SMC Global Power, Philippines
- Latin American Coal - Colombia
- Independent Power Producers Association of India
- Maheswari Brothers Coal Limited - India
- Sindya Power Generating Company Private Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Trasteel International SA, Italy
- Power Finance Corporation Ltd., India
- Indogreen Group - Indonesia
- Singapore Mercantile Exchange
- Grasim Industreis Ltd - India
- Sakthi Sugars Limited - India
- Jaiprakash Power Ventures ltd
- Attock Cement Pakistan Limited
- Deloitte Consulting - India
- Madhucon Powers Ltd - India
- Cement Manufacturers Association - India
- Karaikal Port Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kalimantan Lumbung Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Romanian Commodities Exchange
- Gujarat Electricity Regulatory Commission - India
- London Commodity Brokers - England
- GN Power Mariveles Coal Plant, Philippines
- Indonesian Coal Mining Association
- Timah Investasi Mineral - Indoneisa
- Planning Commission, India
- Malabar Cements Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Sical Logistics Limited - India
- Xindia Steels Limited - India
- SN Aboitiz Power Inc, Philippines
- Electricity Generating Authority of Thailand
- Central Electricity Authority - India
- Parliament of New Zealand
- Iligan Light & Power Inc, Philippines
- Uttam Galva Steels Limited - India
- White Energy Company Limited
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Lanco Infratech Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Baiduri Energy - Indonesia
- Aditya Birla Group - India
- SMG Consultants - Indonesia
- International Coal Ventures Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Krishnapatnam Port Company Ltd. - India
- Anglo American - United Kingdom
- Pipit Mutiara Jaya. PT, Indonesia
- Goldman Sachs - Singapore
- Merrill Lynch Commodities Europe
- LBH Netherlands Bv - Netherlands
- Ind-Barath Power Infra Limited - India
- Jindal Steel & Power Ltd - India
- Kobexindo Tractors - Indoneisa
- VISA Power Limited - India
- Parry Sugars Refinery, India
- Indika Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Leighton Contractors Pty Ltd - Australia
- GAC Shipping (India) Pvt Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Banpu Public Company Limited - Thailand
- Makarim & Taira - Indonesia
- Tamil Nadu electricity Board
- Bharathi Cement Corporation - India
- Rashtriya Ispat Nigam Limited - India
- Global Coal Blending Company Limited - Australia
- Bhoruka Overseas - Indonesia
- Eastern Coal Council - USA
- GMR Energy Limited - India
- Sree Jayajothi Cements Limited - India
- Coalindo Energy - Indonesia
- Africa Commodities Group - South Africa
- TeaM Sual Corporation - Philippines
- Semirara Mining Corp, Philippines
- Meralco Power Generation, Philippines
- Metalloyd Limited - United Kingdom
- Jorong Barutama Greston.PT - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- CNBM International Corporation - China
- Bulk Trading Sa - Switzerland
- Binh Thuan Hamico - Vietnam
- Bukit Makmur.PT - Indonesia
- Australian Commodity Traders Exchange
- Salva Resources Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Bhatia International Limited - India
- Semirara Mining and Power Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Port Waratah Coal Services - Australia
- Barasentosa Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- Global Green Power PLC Corporation, Philippines
- Videocon Industries ltd - India
- Neyveli Lignite Corporation Ltd, - India
- AsiaOL BioFuels Corp., Philippines
- Star Paper Mills Limited - India
- Heidelberg Cement - Germany
- Essar Steel Hazira Ltd - India
- South Luzon Thermal Energy Corporation
- OPG Power Generation Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Agrawal Coal Company - India
- The Treasury - Australian Government
- PTC India Limited - India
- Altura Mining Limited, Indonesia
- Indo Tambangraya Megah - Indonesia
- San Jose City I Power Corp, Philippines
- PetroVietnam Power Coal Import and Supply Company
- ICICI Bank Limited - India
- Larsen & Toubro Limited - India
- Wilmar Investment Holdings
- Wood Mackenzie - Singapore
- Kepco SPC Power Corporation, Philippines
- Renaissance Capital - South Africa
- Posco Energy - South Korea
- Directorate Of Revenue Intelligence - India
- ASAPP Information Group - India
- Mercator Lines Limited - India
- Kideco Jaya Agung - Indonesia
- Rio Tinto Coal - Australia
- Standard Chartered Bank - UAE
- Orica Mining Services - Indonesia
- Bangladesh Power Developement Board
- India Bulls Power Limited - India
- Sojitz Corporation - Japan
- Antam Resourcindo - Indonesia
- Chettinad Cement Corporation Ltd - India
- Ambuja Cements Ltd - India
- Kartika Selabumi Mining - Indonesia
- Mjunction Services Limited - India
- Energy Development Corp, Philippines
- Formosa Plastics Group - Taiwan
- Chamber of Mines of South Africa
- Marubeni Corporation - India
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